China's mild inflation creates room for financial risk

Customers shop at a super market, file photo. [Photo/Xinhua]

Since the end of 2016, authorities have tightened financial regulation and credit control, and have been using an expanded monetary toolkit to manage liquidity.

With downward pressure and increasing global market uncertainty complicating the outlook, analysts said the mild inflation and steady growth momentum would give policy makers more scope to continue deleveraging.

Orlik expected the central bank to continue dealing with the deleveraging challenge, not to hasten monetary easing.

CICC analyst Liu Wenqi said monetary policy would stay largely neutral, but also be ready to be "fine-tuned" on potential changes in growth and inflation trajectory.

The government's ongoing drive to contain financial risks will see credit growth slowing further in the coming months, including credit flows to local governments, which may soften fixed-asset investment and weigh on economic activity, UBS economist Wang Tao said.

However, Wang expected growth to stay firm before softening modestly going into the year end.

GDP grew 6.9 percent in the first half of the year, well above the government's target of around 6.5 percent for the year.